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(1)ASSOCIATION FOR THE STUDY OF PEAK OIL AND GAS. IV INTERNATIONAL WORKSHOP ON OIL AND GAS DEPLETION 19-20 May 2005, Lisbon, Portugal. Proceedings. Published by Centro de Geofísica de Évora University of Évora.

(2) www.peakoil.net. ASSOCIATION FOR THE STUDY OF PEAK OIL AND GAS. Proceedings of the. IV INTERNATIONAL WORKSHOP ON OIL AND GAS DEPLETION 19-20 May 2005, Lisbon, Portugal. Published by Centro de Geofísica de Évora Universidade de Évora Largo dos Colegiais 2, 7000-803, Portugal.

(3) Cover: Lisbon. Title: Proceedings of the IV INTERNATIONAL WORKSHOP ON OIL AND GAS DEPLETION (2005) Editors: Organizing Committee (CGE/UE) Editor’s address: Centro de Geofísica de Évora (Universidade de Évora) Colegio Luis Verney, Rua Romão Ramalho, 59 7002-554 Évora, Portugal http://www.cge.uevora.pt http://www.uevora.pt Print: Service de Reprografia e Publicações da Universidade de Évora. Largo dos Colegiais 2, 7000-803, Portugal. Printing of the cover : Gráfica Eborense (Évora, Portugal) Number of copies: 500 Legal Deposit:226635/05 ISBN: 972-778-079-2.

(4) IV INTERNATIONAL WORKSHOP ON OIL AND GAS DEPLETION Conference hosted by. Calouste Gulbenkian Foundation. Conference Organization. Centre de Geofísica de Évora (Universidade de Évora). Ce nt ro de Ge ofís ica de Évora Unive r s ida de de Évora. Organizing Committee Araújo, A. Alexandre (Centro de Geofísica de Évora) Bezzeghoud, Mourad (Centro de Geofísica de Évora) Collares-Pereira, Manuel (INETI and IST, Co-Chairman) Reis, António Heitor (Centro de Geofísica de Évora) Rosa, Rui Namorado (Centro de Geofísica de Évora, Chairman) Silva, Ana Maria (Centro de Geofísica de Évora). Sponsors.

(5) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 CONTENTS. INTRODUCTION...................................................................................................................................................... 3 THE ASSOCIATION FOR THE STUDY OF PEAK OIL AND GAS.................................................................. 4 THE DEPLETION PROTOCOL............................................................................................................................. 6 PROGRAM ................................................................................................................................................................ 7 INVITED PAPERS................................................................................................................................................... 11 THE ASPO ROAD FROM UPPSALA TO LISBON .................................................................................................... 12 THE END OF THE FIRST HALF OF THE AGE OF OIL ............................................................................................ 14 FORECASTING PRODUCTION FROM DISCOVERY ................................................................................................. 16 GLOBAL OIL DEPLETION – METHODOLOGIES AND RESULTS ............................................................................ 18 EMERGING SIGNS OF OIL DEPLETION – WHERE REALITY MEETS THEORY ..................................................... 20 PARTEX OIL AND GAS: A VISION OF THE WORLD MARKET AND THE ROLE OF GAS AS THE FUTURE OF OIL ............................................................................................................................................................................... 22 THE END OF CHEAP OIL: STRUCTURAL OR CYCLICAL CHANGE IN THE GLOBAL OIL MARKET? ................... 24 REDEFINING PEAK OIL ........................................................................................................................................ 26 SAUDI ARABIA – CAN IT DELIVER? ..................................................................................................................... 27 IRAN AND IRAQ: OIL RESERVES, PRODUCTION CAPACITIES AND FUTURE OUTPUT. ....................................... 29 EXPLORING THE BASINS OF THE ARCTIC ............................................................................................................ 30 HOW MUCH OIL AND GAS FROM DEEPWATER? THE EXPERIENCE OF BRAZIL ................................................ 32 CANADIAN OIL SANDS: DEVELOPMENT AND FUTURE OUTLOOK....................................................................... 34 PAST PEAK OIL: THE ALTERNATIVES ................................................................................................................. 37 FUTURE FUELS FOR COMMERCIAL VEHICLES .................................................................................................... 38 PEAKING OF WORLD OIL PRODUCTION: IMPACTS, MITIGATION, & RISK MANAGEMENT .............................. 40 THE IMPACT OF OIL DEPLETION ON AUSTRALIA ............................................................................................... 43 THE CHALLENGE AND COUNTERMEASURES BROUGHT BY THE SHORTAGE OF OIL AND GAS IN CHINA......... 46 THE LIKELY IMPACT OF GLOBAL OIL PEAK ON THE UNITED STATES .............................................................. 48 THE URGENCY FOR ENERGY ECONOMICS .......................................................................................................... 50 STRATEGIES FOR THE FUTURE DEVELOPMENT OF ENERGY SYSTEMS .............................................................. 52 ON THE RELATIONSHIP BETWEEN ENERGY, WORK, POWER AND ECONOMIC GROWTH ................................. 54 ENERGY ECONOMICS IN THE SECOND HALF OF THE AGE OF OIL ..................................................................... 56 SELECTED COMMUNICATIONS......................................................................................................................... 59 UNCERTAINTY IN PEAK OIL TIMING ................................................................................................................... 60 HOW GENERAL IS THE HUBBERT CURVE? THE CASE OF FISHERIES ................................................................ 63 FORMER SOVIET UNION OIL PRODUCTION AND GDP DECLINE: GRANGER CAUSALITY AND THE MULTICYCLE HUBBERT CURVE ..................................................................................................................................... 65 PEAK OIL AND THE NYMEX FUTURES MARKET: DO INVESTORS BELIEVE IN PHYSICAL REALITIES? ............ 67 THE FIFTH KONDRATIEFF WAVE: THE FOSSIL FUELS APOGEE ........................................................................ 69 THE NEED FOR BIOPHYSICAL ECONOMICS ......................................................................................................... 71 BIOGRAPHIES ........................................................................................................................................................ 73 KJELL ALEKLETT ........................................................................................................................................... 74 PEDRO ALMEIDA............................................................................................................................................. 74 ROBERT U. AYRES ........................................................................................................................................... 74 ALI MORTEZA SAMSAM BAKHTIARI.......................................................................................................... 74 UGO BARDI ........................................................................................................................................................ 75 ROGER W. BENTLEY....................................................................................................................................... 75 CARLOS BRUHN ............................................................................................................................................... 75 COLIN J. CAMPBELL....................................................................................................................................... 76 YVES COCHET, MP .......................................................................................................................................... 76 MANUEL COLLARES-PEREIRA ................................................................................................................... 76 DR. HERMAN FRANSSEN................................................................................................................................ 77 J. PETER GERLING .......................................................................................................................................... 78 CHARLES A. S. HALL....................................................................................................................................... 78. 1.

(6) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 RICHARD HEINBERG ..................................................................................................................................... 78 DR. ROBERT L. HIRSCH .................................................................................................................................. 79 KLAUS ILLUM................................................................................................................................................... 79 EDDY ISAACS PH.D. ......................................................................................................................................... 80 MICHAEL T. KLARE........................................................................................................................................ 80 MAREK KOLODZIEJ ....................................................................................................................................... 80 JEAN LAHERRERE .......................................................................................................................................... 81 RAY LEONARD ................................................................................................................................................. 81 MARIANO MARZO........................................................................................................................................... 81 JOÃO CARLOS DE OLIVEIRA MATIAS........................................................................................................ 82 RT HON MICHAEL MEACHER, MP.............................................................................................................. 82 RUI NAMORADO-ROSA .................................................................................................................................. 82 PROF. XIONQI PANG ....................................................................................................................................... 83 RUDOLF RECHSTEINER, MP ........................................................................................................................ 83 BRUCE ROBINSON........................................................................................................................................... 84 KRISTIN RØNNING.......................................................................................................................................... 84 CHRIS SANDERS............................................................................................................................................... 84 MARCEL SCHOPPERS .................................................................................................................................... 84 THE RT. HON. EDWARD RICHARD SCHREYER.......................................................................................... 85 CHRIS SKREBOWSKI...................................................................................................................................... 85 MATTHEW R. SIMMONS ................................................................................................................................ 85 ROLF WILLKRANS .......................................................................................................................................... 86 JACK ZAGAR..................................................................................................................................................... 86 EAMON RYAN, TD............................................................................................................................................ 86. 2.

(7) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. INTRODUCTION The IV International Conference on Oil and Gas Depletion The IV International Workshop on Oil and Gas Depletion, that is held at Gulbenkian Foundation in Lisbon on the 19th and 20th May, 2005, is the fourth annual meeting promoted by ASPO, the Association for the Study of Peak Oil and Gas, with the organizing support of Geophysics Centre of Évora. Previous meetings were held at the University of Uppsala in 2002, Institut Français du Pétrole, Paris in 2003, and Bundesanstatt fur Geowissenschaften und Roshtoffe, Berlin in 2004. In this fourth annual edition, the core topics chosen for our works are: • Reality in Oil Exporting Countries: The Supply Limits • Impacts of Depletion in Oil Importing Countries: The Demand Pressure • How-Much Regular Oil and Non-Conventional Oil: Utopia versus Reality • The Case for Political Action: The Depletion Protocol • The World Past Peak Oil Age From Uppsala to Lisbon, the public perception of the serious threat impending on humankind as a result of the growing scarcity of fossil fuels has increased. And national and international authorities have slowly but perceptibly admitted and changed their discourse on the problematic availability of the energy required to run the world economy. But political consequences have not yet been addressed straightforwardly – when political action is ever increasingly urgent for putting in place the economical and social changes and technological infrastructure required for preserving wellbeing if not survival itself. For this reason, in this fourth edition of ASPO’s annual meetings we called upon members of the political community to share their views on how political action might be taken at the required international level. As the starting point of this debate we have the Depletion Protocol - first proposed by Colin Campbell 10 years ago at a conference in London. It has surfaced in various guises since, named the Uppsala Protocol in 2002, on the occasion of the First International ASPO’s Workshop, later also referred to as the Rimini Protocol. The organizers of this Workshop welcome all participants and thank all speakers who kindly accepted to contribute to this event and those participants who also offered their contributions. They thank Calouste Gulbenkian Foundation and Partex – Oil and Gas, for generously hosting this event and offering the valuable sponsorship which makes it possible. Thanks are also due to the staff of the Geophysics Centre of Évora and University of Évora who, along the past few months, has worked in preparation of the conditions to hold this event now and who, together with the staff of Gulbenkian Foundation, are making it through. The Organizing Committee May 2005. 3.

(8) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. THE ASSOCIATION FOR THE STUDY OF PEAK OIL AND GAS ASPO is a network of concerned scientists in European Universities and Government Departments with the following declared mission: 1. To evaluate the world's endowment and definition of oil and gas; 2. To study depletion, taking due account of economics, demand, technology and politics; 3. To raise awareness of the serious consequences for Mankind. It has been in existence for four years, putting out a monthly newsletter, operating a website www.peakoil.net and holding annual conferences. It is by all means a Network, lacking a formal establishment, but that adds to its strength allowing the national committees to do what is appropriate in their own countries. It is said that from small acorns, large oak trees grow, and from a small beginning ASPO has certainly enjoyed a remarkable success, with its voices now being heard throughout the world. This year is the turn of Lisbon to host the conference with the generous support of the Gulbenkian Foundation. In large measure, this success is due to events beyond its control, for the notion of Peak Oil, which has been obvious to the scientist for so long, now captures popular imagination and rises to the head of political agendas everywhere. PEAK OIL The Concept of Peak Oil can be explained in a few words: Oil was formed but rarely in time and place in the Earth's geological past, meaning that it is a finite resource subject to depletion. It has to be found before it can be produced. The peak of discovery in the 1960s therefore heralded a corresponding peak of production. The larger fields were found first in most areas. Production is also constrained by the physics of the reservoir. The production profile in a country or region with a large population of fields is normally symmetrical, with peak coming when half the total has been produced. Gas follows a different trajectory with a steep terminal decline, with the World peak coming a few years after oil. Public data on oil and gas reserves are grossly unreliable, subject to both over- and under-reporting in different countries, which allows economists to argue that production is simply a function of investment and technology. The true state of affairs would otherwise be almost self-evident. The World is in fact now very close to Peak, spelling the End of the First Half of the Oil Age. It lasted 150 years and saw the growth of industry, transport, trade, agriculture, and financial capital, made possible by an abundant flow of cheap oil-based energy. The Second Half now dawns, and will be characterised by the decline of oil and all that depends upon it. Peak Oil is accordingly an unprecedented historic discontinuity with grave consequences. This Conference brings together participants from many countries to dig behind the many veils of confusion and misrepresentation in an effort to identify the contributions of all the different categories of oil and to identify the regional issues. It moves beyond the simple acceptance of the reality of peak oil as imposed by Nature, to model more exactly the depletion profiles and political impacts, which may also affect demand. A panel of prestigious politicians evaluate the scope for new initiatives to put demand in better balance with the supply as constrained by Nature. The transition to decline will undoubtedly be an epoch of grave tension and geopolitical conflict as consumers vie with each other for access to supplies. With about half of what is left lying in just five countries bordering the Persian Gulf, the Middle East is an obvious flashpoint. But in the longer term, there are hopes for sensible responses putting people into a better. 4.

(9) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 relationship with themselves, their neighbours and the Environment within which Nature has ordained them to live. The Conference gives people the chance to come together in the ancient city of Lisbon that has experienced many vicissitudes during the long history etched into the stones of its fine buildings. The formal programme sets the scene, but much is also achieved in informal meetings and discussions. The World's media has cast a serious eye on the previous ASPO conferences in Uppsala, Paris and Berlin, and will no doubt follow the proceedings in Lisbon with a sharpened interest as the storm clouds gather above an uncertain world. Colin J. Campbell November 2004. 5.

(10) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. THE DEPLETION PROTOCOL WHEREAS the passage of history has recorded an increasing pace of change, such that the demand for energy has grown rapidly in parallel with the world population over the past two hundred years since the Industrial Revolution; WHEREAS the energy supply required by the population has come mainly from coal and petroleum, having been formed but rarely in the geological past, such resources being inevitably subject to depletion; WHEREAS oil provides ninety percent of transport fuel, essential to trade, and plays a critical role in agriculture, needed to feed the expanding population; WHEREAS oil is unevenly distributed on the Planet for well-understood geological reasons, with much being concentrated in five countries, bordering the Persian Gulf; WHEREAS all the major productive provinces of the World have been identified with the help of advanced technology and growing geological knowledge, it being now evident that discovery reached a peak in the 1960s, despite technological progress, and a diligent search; WHEREAS the past peak of discovery inevitably leads to a corresponding peak in production during the first decade of the 21st Century, assuming no radical decline in demand; WHEREAS the onset of the decline of this critical resource affects all aspects of modern life, such having grave political and geopolitical implications; WHEREAS it is expedient to plan an orderly transition to the new World environment of reduced energy supply, making early provisions to avoid the waste of energy, stimulate the entry of substitute energies, and extend the life of the remaining oil; WHEREAS it is desirable to meet the challenges so arising in a co-operative and equitable manner, such to address related climate change concerns, economic and financial stability and the threats of conflicts for access to critical resources.. NOW IT IS PROPOSED THAT 1. A convention of nations shall be called to consider the issue with a view to agreeing an Accord with the following objectives: a. to avoid profiteering from shortage, such that oil prices may remain in reasonable relationship with production cost; b. to allow poor countries to afford their imports; c. to avoid destabilising financial flows arising from excessive oil prices; d. to encourage consumers to avoid waste; e. to stimulate the development of alternative energies. 2. Such an Accord shall have the following outline provisions: a. No country shall produce oil at above its current Depletion Rate, such being defined as annual production as a percentage of the estimated amount left to produce; b. Each importing country shall reduce its imports to match the current World Depletion Rate, deducting any indigenous production. 3. Detailed provisions shall cover the definition of the several categories of oil, exemptions and qualifications, and the scientific procedures for the estimation of Depletion Rate. 4. The signatory countries shall cooperate in providing information on their reserves, allowing full technical audit, such that the Depletion Rate may be accurately determined. 5. The signatory countries shall have the right to appeal their assessed Depletion Rate in the event of changed circumstances. In: “The Truth about Oil and the Looming Energy Crisis”, Colin Campbell (Eagle Print, Ireland, 2004). 6.

(11) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 IV INTERNATIONAL WORKSHOP ON OIL AND GAS DEPLETION ASPO LISBON MEETING. PROGRAM THURSDAY 19TH MAY 2005. 8:00 - 9:00 - REGISTRATION 9:00 – 9:45 - OPENNING SESSION Rui N. Rosa (Chair of Organizing Committee, ASPO and Geophysics Centre of Évora, Portugal): Welcome address E. Rui Vilar (President, Fundação Calouste Gulbenkian, Portugal): Calouste Sarkis Gulbenkian: a pioneer in the Oil Industry Kjell Aleklett (ASPO President and University of Uppsala, Sweden): ASPO: From Uppsala to Lisbon 9:50 – 10:30 – KEYNOTE ADDRESS C. J. Campbell (ASPO Chairman and ODAC, Ireland): The End of the First Half of the Age of Oil 10:30 – 10:45 - COFFEE BREAK 10:45 – 12:00 – WORKING SESSION Jean Laherrère (ASPO and ex Deputy Exploration Manager, TOTAL, France): Forecasting production from discovery Roger W. Bentley (ASPO and University of Reading, UK): Global Oil Depletion: Methodologies and Results Chris Skrebowski (editor of Petroleum Review, UK): The Emerging Reality of Oil and Gas Depletion – Where Reality Meets Theory 12:00 – 12:30 - SELECTED COMMUNICATIONS Marcel Schoppers (Prospective Modeling, Pasadena, California, USA Jet Propulsion Laboratory, NASA, USA): Uncertainty in Peak Oil Timing Ugo Bardi (ASPO and Dipartimento di Chimica – Università di Firenze, Italy): How General is the Hubbert Curve? Marek Kolodziej (University of Illinois at Chicago, Department of Economics, USA): Former Soviet Union Oil Production and GDP Decline: Granger Causality and the Multi-Cycle Hubbert Curve 12:30 – 14:00 – LUNCHEON BREAK 14:00 – 14:30 - SELECTED COMMUNICATIONS Pedro Almeida (Dep. de Informática and Dep. de Electromecânica, Universidade da Beira Interior, Covilhã, Portugal): Peak Oil and the NYMEX Futures Market: Do Investors Believe in Physical Realities? João Matias (Technological Forecasting and Innovation Theory Working Group (TFIT-WG), University of Beira Interior, Covilhã, Portugal): The Fifth Kondratieff Wave – The Fossil Fuels Apogee Charles A. S. Hall (State University of New York, College of Environmental Science and Forestry. Syracuse N.Y.; USA): The need for biophysical economics 14:35 – 16:00 – WORKING SESSION - Chair J. Peter Gerling A. Costa Silva (Chairman of Management, Partex Oil and Gas, Portugal): A Vision of the World Market and the Role of Gas as a Substitute for Oil. 7.

(12) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 Herman Franssen (President, International Energy Associates, USA): The End of Cheap Oil: Cyclical or Structural Change in the Global Oil Market? Matthew Simmons (Chairman and Chief Executive Officer of Simmons & Company International, USA): US Energy Policy and Foreign Policy 16:00 – 16:15 - COFFEE BREAK 16:15 – 18:00 - The Depletion Protocol: Panel Discussion on Political Action Chair: Kjell Aleklett (ASPO President and the University of Uppsala, Sweden) Yves Cochet (MP, former minister of Territory and Environment, France) Michael Meacher (MP, former minister of Environment, UK) Rudolf Rechsteiner (MP, Switzerland) Edward Schreyer (former Governor General, Canada) 18:00 - 18:30 - Question and Comment Time 19:00 – SOCIAL PROGRAMME. FRIDAY MAY 20TH. 09:00 – 11:00 – WORKING SESSION - Chair Mariano Marzo Jack Zagar (Independent petroleum reservoir engineering consultant, an associate of MHA Petroleum Consultants, Inc. of Golden, Colorado and partner with noted author and world oil reserve expert, Dr. Colin Campbell): Saudi Arabia - Can It Deliver? Ali Samsam Bakhtiari (Iranian analyst of Middle Eastern oil affairs, Iran): Iran and Iraq: Oil Reserves, Production Capacities and Future Output Ray Leonard (Senior Vice President, International Upstream, MOL, Hungary, and ex Vice President for Exploration and New Ventures, Yukos, Russia): The Reality of Russia Kristin Rønning (Staff geologist, Statoil, Norway): Exploring the basins of the Arctic Carlos Bruhn (Petrobras E&P Corporate Manager for Reservoir Characterization, Petrobras, Brazil): How Much Oil and Gas from Deepwater? The Experience of Brazil 11:00 – 11:15 - COFFEE BREAK 11:15 – 12:45 – WORKING SESSION Eddy Isaacs (Managing Director, Alberta Energy Research Institute, Calgary, Canada): Canadian Oil Sands: Development and future Outlook Manuel Collares-Pereira (ASPO, INETI and IST, Portugal): Past Peak Oil: the Alternatives Rolf Willkrans (AB Volvo, Göteborg, Sweden): Future Fuels for Commercial Vehicles Robert L. Hirsch (Senior Energy Program Advisor at SAIC - Science Applications International Corporation - and consultant, USA): Peaking of World Oil Production: Impacts, Mitigation, & Risk Management 12:45 – 14:15 – LUNCHEON BREAK 14:15 – 15:40 – WORKING SESSION - Chair Ugo Bardi Xiongqi Pang (Director of Laboratory of Hydrocarbon Migration and Accumulation Mechanism, University of Petroleum, Beijing, P.R. China and Editor Director of Petroleum Science): Impact of Oil Depletion in China Bruce Robinson (Sustainable Transport Coalition, Australia): Impact of Depletion on Australia. 8.

(13) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 Richard Heinberg (author, professor and educator, USA): The Likely Impact of Peak Oil on the United States 15:45 – 16:00 - COFFEE BREAK 16:00 – 17:40 – WORKING SESSION Rui N. Rosa (ASPO and Geophysics Centre of Évora, Portugal): The Urgency for Energy Economics Klaus Illum (ECO Consult: Systems Analysis. Energy, Ecology, Economy, Denmark): Strategies for the Future Development of Energy Systems Robert U. Ayres (Professor (and Novartis Chair) Emeritus, INSEAD, Fontainebleau, France, and Institute Scholar at the International Institute for Applied Systems Analysis (IIASA), Laxenburg, Austria): Implications of Higher Oil Prices for Future Economic Growth Chris Sanders (Sanders Research Associates, UK): Energy Economics in the Second Half of the Age of Oil 17:45 - 18:00 – SUMMING UP C. J. Campbell (ASPO Chairman and ODAC, Ireland) Manuel Collares-Pereira (Co-Chair of Organizing Committee, ASPO, INETI and IST, Portugal) E. Marçal Grilo (Fundação Calouste Gulbenkian and Partex Oil and Gas, Portugal) END OF THE WORKSHOP PROGRAMME. 9.

(14) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. 10.

(15) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. INVITED PAPERS. 11.

(16) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. The ASPO Road from Uppsala to Lisbon Kjell Aleklett, President of ASPO Uppsala Hydrocarbon Depletion Study Group Uppsala University, Uppsala, Sweden The missions of the ASPO Network have been declared: (1) To define and evaluate the world's endowment of oil and gas; (2) To model depletion, taking due account of demand, economics, technology and politics; and (3) To raise awareness of the serious consequences for Mankind.. that must be taken seriously. Forward-looking politicians, company chiefs and economists should prepare for this in good time, to effect the necessary transition as smoothly as possible.” When we discuss the consumption of oil, we must address the United States in particular because it is consuming more oil then any other country, and in terms of consumption per person has no rival. In pointing this out, we are exposed to risk of being identified anti-American, which is by no means the case. We do however remain puzzled that the responsible American agencies do not do more to serve their country by explaining the true position instead of raising false hopes. The Energy Information Administration, which was established by Congress in 1977, posted on August 18, 2004 a report entitled Long-Term World Oil Supply Scenarios, containing the statement In any event, the world production peak for conventionally reservoired crude is unlikely to be "right around the corner" as so many other estimators have been predicting. Our analysis shows that it will be closer to the middle of the 21st century than to its beginning.”. Reading the growing number of articles on the subject from around the world might suggest that these missions have been accomplished, but that is no reason for complacency as there is much left to do. Even though enormous progress has been made since the first workshop in Uppsala three year ago, we still have important steps to make. The road from Uppsala to Lisbon has not been a smooth one. It is evident to most thinking people that the World will very soon have to change its habits and consume less oil. Meeting the challenges of threatened climate change is one good reason for doing so. According to the Kyoto Protocol we need to return to the emission levels of 1990 when the world was consuming 23.8 billion barrels of oil per year. Since consumption today has reached 30 billion per year, an imminent PEAK OIL may turn out to be a salvation, because in due course it will cause production to return to the level of 1990. In a certain sense, PEAK OIL may reduce the risks of climate change and is to be welcomed in that regard.. It is obvious that ASPO still has an important mission to counter this misleading position. We felt that good progress was being made at the workshop in Berlin which was attended by the International Energy Agency. It was disappointing therefore to read in its World Energy Outlook 2004 that we don’t need to worry before 2030. Given its authority, as an arm of the OECD Governments, such a statement could certainly be described as a step backward for Mankind. Yet in December I had the privilege to discuss the Outlook with François Cattier, who is responsible for the oil chapter, and I asked him if he himself believed in the forecast? The answer he gave was: This is not a forecast, it is a scenario” which was a telling answer in itself. It was at least a positive indication that WEO 2004 mentioned peak oil at all even to the extent of stating that it could arrive in 2015 in the event that the optimistic reserve forecasts from USGS were not fulfilled.. Those of us working on the PEAK OIL issue have been nick-named “Peakers”, although more often are described derisively as Doomsdays Prophets. Personally, I would prefer to be termed a Missionary because we most certainly have a most important mission to accomplish. I am optimistic because we are making progress and being recognized by the decision makers. The Deutsche Bank, for example, has released a research report about Peak Oil and supports our position with the comment: “The end-of-the-fossil-hydrocarbons scenario is not therefore a doom-and-gloom picture painted by pessimistic end-of-the-world prophets, but a view of scarcity in the coming years and decades. 12.

(17) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 We have had several signs that Peak Oil now starts to be on the political agenda of world leaders. On 4-5th February 2005, the G7 Finance Ministers and Central Bank Governors met in London and following statement confirms their new concerns. We discussed medium-term energy issues and the risks of current oil prices. Market transparency and data integrity is key to the smooth operation of markets. We welcomed concrete actions in improving data provision to oil markets and encouraged further work, including on oil reserves data, by relevant international organisations” We in ASPO may therefore feel gratified that our work begins to command their attention and support. Other signs that peak oil starts to have impact is the fact that, the US Department of Energy (DoE) has called for an investigation entitled the Mitigation of the Peaking of World Oil Production, and that the IEA on March 7th 2005 organized a workshop for OECD Ministers of Transport, whose main objective was To identify and review cost-effective actions for reducing transport oil demand. The report to the DoE states that action must start 20 years before peak oil. We in ASPO know now that the World does not have 20 years, but must act now. Finally, I draw attention to the Depletion Protocol that will be discussed on this workshop. It offers a framework under which governments may manage the depletion of oil as imposed by Nature in an orderly and systematic fashion, reducing thereby the inevitable tensions that otherwise must accompany a discontinuity of this historic magnitude.. 13.

(18) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. The End of the First Half of the Age of Oil C.J.Campbell aspotwo@eircom.net Petroleum geologists know that oil and gas were formed but rarely in time and place in the Earth’s long geological history, which means that that they are finite resources, subject to depletion.. scheme of production to maximize profit against investment. Huge investments are at stake offshore and in remote areas, so it makes good sense to work on a cautious step-by-step basis.. In brief, oil is derived from algae that proliferated in certain geological and climatic settings. The great bulk of the World’s oil comes from two brief epochs of extreme global warming, 90 and 150 million years ago, which coincided with the development of stagnant rifts as the continents moved apart. Gas is derived both from plant remains and from ordinary oils that been overheated on deep burial. Peak generation commenced when the organic material had been buried beneath younger sediments to depths of about 2000m. There is a polarity about oil, being either there in profitable abundance or not there at all, that distinguishes it from coal and other minerals, where concentration is the key factor. There are many different categories of oil and gas, each having its own costs, characteristics and depletion profile. Some are cheap, easy and fast to produce, whereas others are the precise opposite. To avoid confusion, it is useful to identify Regular Conventional Oil (and Gas), and define it to exclude: • Oil from coal and “shale” • Bitumen • Extra-Heavy Oil • Heavy Oil (10-17.5o API) • Deepwater Oil and Gas (>500m) • Polar Oil and Gas • Natural Gas Liquids from gas plants • Coalbed methane, “tight gas” etc.. Once formed in these exceptional conditions, oil and gas migrated upwards through the rocks to zones of lesser pressure. Some was dissipated; some escaped at the surface, leaving behind a heavy tarry residue; and some was trapped in geological structures large enough to become oil and gas fields. The first step to find oil and gas is to secure the rights to do so. Geologists then examine the area searching for the rare right combination of circumstances. They are aided by geochemistry to determine the effective source rocks and geophysical surveys to map the structures beneath the surface. Petroleum geology has itself made great strides. Prospects of varying degrees of scientific assurance are identified and then tested by an exploratory borehole, known as a wildcat. It determines whether or not the prospect is valid, also providing more information with which to evaluate the remaining prospects. Exploration proceeds in any area until a momentof-truth is reached either by a discovery or by the realisation that the area lacks the essential geology, in which case it remains forever barren. Normally, the larger fields were found first, being too large to miss.. It has contributed most to-date, and will dominate all supply far into the future, determining the peak of all production. Production has to mirror earlier discovery after a time-lag. Discovery in any field or area comprises the sum of past production and estimated future production of known fields, termed Reserves. The determination of Reserves poses no particular scientific challenge, but the reporting of reserves is subject to much confusion. Oil companies generally under-reported to comply with strict Stock Exchange rules. The practice led to a comforting but misleading impression of Reserve Growth that has been mistakenly attributed to technological progress and extrapolated into the future. Certain OPEC countries over-reported, as they vied with each other for production quota, based on Reported Reserves. Many countries have failed to update their estimates.. When a promising discovery is made, responsibility passes from the explorers to the engineers, charged with implementing an efficient. 14.

(19) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 The Second Half of the Age of Oil now dawns, and will be marked by the decline of oil and all the depends upon it. This includes Financial Capital as the decline of oil-based energy removes the essential confidence that there will be Expansion Tomorrow to support To-day’s Debt, a critical relationship. It spells, in other words, the End of Economics, as presently understood and practiced. That in turn calls for entirely new political structures and policies to replace those based on out-dated economics.. If valid information were in the public domain, the issue of peak production and decline would be entirely self-evident. As it is, the skills of a detective have had to be used to obtain the assessment of Regular Oil as follows: Produced 944 Gb (billion barrels) Reserves 761 Discovered 1705 Yet-to-Find 145 Yet-to-Produce 906 Total 1850. The evidence accordingly suggests that the World faces a discontinuity of unprecedented magnitude, undermining the very fabric of society and economic wellbeing. In short, it faces a Second Great Depression, triggered not by Peak Production itself but by the perception of the long downward slope that follows it.. There are various ways by which to forecast production, but theoretical and empirical evidence indicate that the peak in any country normally comes close to the midpoint of depletion when half the total has been consumed. On this basis, and making allowance for the special circumstances of the Middle East, the global peak of oil production is forecast for 2005/6. Gas depletes differently, being more influenced by infrastructure, but is expected to reach a plateau of 125 Tcf/a (trillion cubic feet a year) from 2025 to 2045.. An economic downturn will be accompanied by a fall in the demand for oil and gas such that prices may collapse, rendering the development of NonConventional Oil and Renewable Energies uneconomic, compounding the problem. The primary challenge is to deal with the transition. One simple and straightforward mechanism is for the countries of the world to cut their demand to match world depletion rate. A Depletion Protocol to so achieve needs to be implemented as a matter of urgency. After peak, oil production declines at 2-3% a year, such that the production of Regular Oil is set to decline from 66 Mb/d (million barrels a day) in 2005 to about 45 Mb/d in 2020 and 20 Mb/d by 2020. It is not about to run out. The evaluation implies that the World reaches the end of the First Half of the Age of Oil, which lasted 150 years. It was an epoch in history that saw the rapid expansion of Industry, Transport, Trade, Agriculture and Financial Capital, made possible by an expanding supply of cheap oilbased energy. The population increased six-fold in parallel.. The transition will be a time of great tension and difficult adjustment, with a strong possibility of more resource wars. But as the Century passes, the survivors will come to terms with their new environment. It may herald a new regionalism as world trade declines, and people again come to live within their own resources. It might indeed be a time of happiness giving people a new-found respect for themselves, each other and the environment within which Nature has ordained them to live.. Of particular importance is the issue of Financial Capital, which is not easily grasped. Banks lent money in excess of what was on deposit and charged interest, creating money out of thin air, but the system worked because confidence in Tomorrow’s Expansion provided collateral for Today’s Debt. In addition, world trading currencies, now the US dollar, delivered a hidden flow of new capital to the issuing country. The current high oil prices reflect profiteering from shortage by oil companies and producing governments, as production costs have not changed materially, providing yet more unearned Capital.. 15.

(20) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. Forecasting Production from Discovery Jean Laherrere jean.laherrere@wanadoo.fr basis of field production decline analysis to obtain a Mean value.. Since oil has to be found before it can be produced, production mimics discovery after a time-lapse. The relationship is well illustrated by the example of the US Lower-48, provided backdated Mean reserve estimates, as opposed to current Proved Reserves, are used. The distinction is important because the term Proved is a financial term defined by Stock Exchange rules. We seek the best estimate of what is physically producible, described in technical terms as having a Mean Probability.. So-called Reserve Growth is another source of confusion. Revisions to Mean Probability reserves are statistically neutral, whereas Proved Reserves tend to grow over time as they become commercially confirmed for financial purposes. The probability of the US DoE Proved Reserves estimates has decreased since 1970 from 75% to 50% now. Negative revisions now exceed positive ones in US offshore areas. For these reasons, it is a major challenge to select from different technical sources the most reliable input data for study and analysis. I have gathered my own world field inventory of mean values, which differ from other sources, being a synthesis of all.. The first step in forecasting world production is to define what to measure, as there are different categories of oil, including conventional and nonconventional crude oil, synthetic oils, natural gas liquids and processing gains. The second step is to obtain a complete database, with revisions properly backdated to discovery date. Published data on reserves, as compiled principally by OPEC, the Oil & Gas Journal, World Oil and the BP Statistical Review, are grossly unreliable. Many countries, especially those vying with each other for OPEC quota based on reported reserves, have implausibly failed to revise their estimates for years on end, despite production.. Once the best available information has been selected, it can be analysed with the help of Creaming Curves, which plot cumulative discovery against cumulative New Field Wildcats, to estimate the ultimate potential recovery by country and region. Such plots display several hyperbolic cycles. Future production can be forecast from Ultimate values using several bell-curves. In the case of the United States, M.K Hubbert in 1956 showed that, with only one curve, an Ultimate of 150 Gb (billion barrels) (his estimate) delivered a peak of production in 1965, whereas an Ultimate of 200 Gb (highest estimate from an enquiry) produced one in 1970, which proved to be correct. Another simpler approach is correlate smoothed annual discovery and production trends after a time-lag, which may vary from 5 to 40 years depending on circumstances. It gives satisfactory results except where production has been artificially constrained by for example OPEC quota or war. A variant of this approach is to compare cumulative discovery with cumulative production.. Individual oilfield estimates are confidential in most countries except the United Kingdom, Norway and US federal lands. Such information is available only at great expense from commercial databases from spying (scout) companies, such as IHS or Wood Mackenzie, and is of variable quality. These databases differ greatly between themselves, and there are differing treatments. Some list all discoveries while others report only those worth developing. Unconventional reserves vary largely. The discrepancy between the several scout world present cumulative discoveries is larger than my estimate of undiscovered reserves. US Mean discovery prior to 1990 is contained in a US DoE report giving the oil and gas reserves by year of field discovery, whereas that after 1990 can be found in the MMS field estimates and the US DoE/EIA annual reports. The reserves reported by the Soviet Union were based on the maximum theoretical recovery, and have to be reduced on the. Studies based on these methods indicate that the World Ultimate Recovery for crude oil is about 2 Tb (trillion barrels), with a further trillion. 16.

(21) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 comprising Extra-Heavy oil, Natural Gas Liquid, Synthetic oil and Refinery Gains. Forecasting Natural Gas production by these methods is less satisfactory as it is more regional in character and subject to local market constraints. But it is clear that supply is set to fall steeply in North America and later in Europe. Careful study of existing date can provide a useful indication of future production, but more reporting transparency is needed to refine the analysis. Production forecast will improve only when field reserve data is more reliable, in particular in OPEC countries, but it will only occur when quotas are definitively abandoned.. 17.

(22) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. Global Oil Depletion – Methodologies and Results R. W. Bentley C/o Department of Cybernetics, University of Reading, Reading, RG6 6AY, UK. r.w.bentley@reading.ac.uk http://www.oildepletion.org (Shell; maybe Exxon), or have - in my opinion - a very poor knowledge of the resource base (IEA, US DoE, ‘WETO’ study). In these latter cases reliance is placed on USGS ‘total oiliness’ data, paying no attention to discovery rate or reserves growth data outside the US. The ‘WETO’ model for example assumes a conventional oil resource of 4500 Gb. This should be compared to the global discovered to-date (incl. NGLs) of only 1950 Gb, and the annual discovery rate of about 10 Gb on a declining trend. Authors who propose conventional oil ultimates much above ~2300 Gb (incl. NGLs) must explain the discovery data and anticipated recovery factors that support their estimates. Group 3 analyses include those by Paul Stevens, Peter Davies, M. Adelman, Michael Lynch, Peter McCabe and Leonardo Maugeri. These analyses rule out the need to examine the oil resource base for a variety of reasons: - Some assume that higher prices will bring on sufficient new conventional oil to prevent difficulties in supply; - Others assume high prices will reduce demand, thus bringing supply/demand back into balance; - Still others consider conventional and nonconventional oil to be economically indistinguishable, and that the non-conventional resource (including shales, and perhaps hydrates) is so large that limits to conventional oil production will have no economic significance.. I. INTRODUCTION This paper describes methodologies used by a variety of individuals and organisations to predict future world production of oil and gas. The models fall into three broad groups based on how the authors see future oil production: Group 1 calculations indicate that global oil production will reach a resource-limited maximum sometime between the years 1996 and 2020, and thereafter decline. Some of these calculations relate to conventional oil only, others to both conventional and non-conventional oil. Group 2 forecasts terminate in 2020 or 2030, and find that the resource base is sufficient for global oil production to meet anticipated demand to these dates. These ‘business-as-usual’ forecasts give no indication if a resource-limited peak is subsequently expected. Group 3 analyses dismiss the possibility of a hydrocarbon resource-limited peak occurring in the near or medium term, and hence see no need to quantitatively assess future oil production. II. DISCUSSION The various methodologies are documented in the full paper. Results from the calculations of Groups 1 and 2 are given here in Tables 1 and 2. Most Group 1 authors assess the oil resource base by adding discovery given by industry data ‘2P’ reserves to an estimated yet-to-find. They then use one of: - ‘mid-point’ peaking (e.g., early Hubbert, Petroconsultants ‘95, or Uppsala/Campbell); - some other production profile (EnergyFiles); - field-by-field modelling (Miller, PFC); to calculate future production. Alternative powerful techniques are to use a linearised production plot based on the logistic curve (later Hubbert, Deffeyes), or to model production as an approximate mirror of discovery (Ivanhoe, Laherrère). Group 2 forecasts either assume that large quantities of non-conventional oil will come smoothly on-stream as conventional declines. III. ACKNOWLEDGEMENTS The author is grateful to J-M. Bourdaire, C.J. Campbell, K.S. Deffeyes, P. Gerling, J.H. Laherrère, R.G. Miller, and M.R. Smith for comments. Responsibility for error remains with the author.. 18.

(23) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 Date 1972 1972 1974 1976 1977 1977 1978 1979 1979 1981 1995 1996 1997 1997 1998 1999 2000 2002 2003 2003 2003 2003 2003 2003 2003 2004 2004. Author ESSO Report: UN Confr. SPRU, UK UK DoE Hubbert Ehrlich et al. WEC / IFP Shell BP World Bank Petroconsultants, ‘95. Ivanhoe Edwards Laherrère IEA: WEO 1998 Magoon of the USGS: Bartlett BGR (Germany) Deffeyes P-R Bauquis U. Uppsala / Campbell Laherrère Energyfiles Ltd. Energyfiles Ltd. Bahktiari model. Miller, BP- own model PFC Energy. Hydrocarbon Pr. Cv. oil Ditto. Ditto. Ditto. Cv. oil Ditto. Pr. Cv. oil Ditto. Ditto. Ditto Cv. oil (xN) Cv. oil Pr. Cv. oil All liquids Cv. oil Pr. Cv. oil Ditto. Cv.&Ncv. oil Cv. oil* All liquids. All h’carbons All liquids All liquids All h’carbons Pr. Cv. oil Cv.&Ncv. oil Cv.&Ncv. oil. Ultimate Gb 2100 2500 1800-2480 n/a 2000 1900 1803 n/a n/a 1900 1800 ~2000 2836 2700 2300 ref.case ~2000 2000 & 3000 Cv.: 2670 3000 3000 Cv: 2338. Date of global peak “increasingly scarce from ~ 2000.” “likely peak by 2000.” n/a “about 2000” 1996 2000 n/a “plateau within the next 25 years.” Peak (non-communist world): 1985 “plateau ~ turn of the century.” About 2005 About 2010. 2020. n/a 2014 Peak ~ 2010. 2004 & 2019, respectively. Combined peak in 2017. ‘Later-Hubbert’ method ~2005. Combined peak in 2020. Combined peak ~2015. n/a 2011 (if 2% demand growth). Combined peak ~ 2020. 2006 - 7 2025: All poss. OPEC prodn. used. 2018 - base case. Table1: Results of some ‘Group 1’ calculations.. Notes: Table is not complete; one notable omission is the WAES study from the late 70s / early 80s. Pr.: Probably; Cv.: Conventional; xN: ex-NGLs; +N: incl. NGLs; All liquids: Conv. and Non-conv. oil plus NGLs; All h’drocabons: Conv. and Non-conv. oil and gas. * = and probably all-oil.. Date. Author. 1998 2000 2001 2002 2002 2003 2004. WEC/IIASA-A2 IEA: WEO 2000 US DoE EIA US DoE Shell Scenario ‘WETO’ study ExxonMobil. Hydrocarbo n Cv. oil Cv. oil (+N) Cv. oil Ditto Cv.&Ncv. oil Ditto Ditto. Ultimate (Gb). F’cast date of peak (by study end-date). World prod. Mb/d 2020 2030. No peak 90 100 No peak 103 2016 / 2037 Various No peak 109 ~4000* Plateau: 2025 - 2040 100 105 4500** No peak 102 120 No peak 114 118 Table 2: Results of some ‘Group 2’ calculations. Notes: *Shell’s ultimate of 4000 Gb is composed of: ~2300 Gb of conventional oil (incl. NGLs); plus ~600 Gb of ‘scope for further recovery’ (‘SFR’) oil; plus 1000 Gb of non-conventional oil. **WETO’s ultimate of 4500 Gb is for conventional oil only; it starts with a USGS figure of 2800 Gb, then grown by assuming large and rapid recovery factor gains to 2030. 3345 3303. 19.

(24) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. Emerging Signs of Oil Depletion – Where Reality Meets Theory Chris Skrebowski BA, FEI, Editor Petroleum Review, Board member Oil Depletion Analysis Centre (ODAC) cs@energyinst.org.uk because of variations in definitions and countries covered. The analysis is then progressed by examining the likely way that depletion will progress in the countries where production is in established decline. In the case of the BP Statistical Review data it is found that in 2003 annual decline rates averaged 4.91% but that this concealed a wide decline range from Gabon’s 18.64% and Australia’s 14.64% to the USA’s 2.26% and Egypt’s 0.4%. Taking a three year average narrows the range of depletion rates but does not significantly alter the pattern or the countries affected.. The aim of the analysis is to establish data that shows oil depletion is a real and increasing reality and to determine the likely timing of ‘Peak Oil’. It remains a fact that overall production will decline once the overall volume of production coming from countries that have declining production exceeds that from countries where production is still expanding. This point is what is usually referred to as ‘Peak Oil’. Even at this point oil will be being discovered and put into production and roughly half the world’s producing countries will still be expanding their production. The approach used relies on the fact that production data, within definitional constraints, is the most reliable and least contestable of all the datasets used to analyse oil depletion. Careful comparison of production data from the BP statistical Review 2004, the latest IEA production data and the production figures printed in the Oil & Gas Journal was made. This showed that in both 2003 (all three sources) and 2004 (only the latter two) the loss of production in countries where production decline is already established were running at 0.9-1.1 million barrels/day in both years. An analysis of the BP Statistical Review data published in the August 2004 edition of Petroleum Review Established that in 2003 around 28% of production was already coming from countries where production decline was clear and sustained. In 2003 some 18 major producers were in decline. In fact nearly 60 oil producing countries are now in decline but the BP Statistics confine themselves to itemising the larger producers. The producers that, in 2003, were in decline were (2003 production in parenthesis): USA (7.45mn b/d); Norway (3.26mn b/d); Venezuela (2.99mn b/d); UK (2.25mn b/d); Indonesia (1.18mn b/d); Oman (0.82mn b/d); Argentina (0.79mn b/d); Egypt (0.75mn b/d); Australia (0.62mn b/d) and Colombia (0.56mn b/d) as well as the smaller producers Gabon, Cameroon, Congo (Brazzaville), Tunisia, Peru, Romania, Yemen and Uzbekistan. Collectively these eighteen countries produced 22.13mn b/d in 2003 or 28.8% of total production. Examination of alternative production data leads to similar conclusions. Exact comparison is not possible. The next stage in the analysis was to look at producers that are likely to move into decline in the next few years. There are good reasons for believing that Denmark and probably Malaysia will move into decline in 2005. The expectation is that Mexico and China, both producing well over 3mn b/d, will start to decline in 2005 or 2006. They are likely to be followed in 2006 or 2007 by India. In 2003 these five countries produced 9.2mn b/d. It should be noted that because the volume being produced by countries in decline is by definition reducing, it is difficult to calculate with precision what percentage of total production would be in decline by a certain date. We can, however, say with some confidence that by 2007/2008 close to 40% of global production will be coming from countries where production is declining. At this point sustaining production levels will become virtually impossible as the countries that still have expansion potential will have to expand unsustainably fast to offset depletion and meet demand growth. In fact rapid production expansion will accelerate depletion and tip an increasing number of of both Opec and non-Opec producing countries into outright decline. Indications of this are not yet showing up clearly in the production data although countries that have had difficulty expanding production are likely candidates.. 20.

(25) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 A complimentary analysis is to list all the larger upcoming oil production projects as these provide virtually all of the incremental supply. Analysing these shows that there are large numbers of projects coming starting up in the 2005, 2006 and 2007. However, after 2007 there are very few new projects. There is, however, an average 6-year gap between discovery and first oil in these larger projects. This means that any new projects that are to come into production by 2010/2011 would be known by now.. It is possible, even likely, that this effect (accelerated depletion leading to decline) could mean that by 2007/2008 rather more than 40% of the world’s production will be coming from areas in decline. In 2003 world oil production growth was 3.66% (BP Statistical Review 2004). However, if the countries in decline are separated from countries still expanding a different picture emerges. The 28% of global production in decline were reducing at an average rate of 4.9% but were more than offset by the 72% of production coming from countries where production was expanding. In 2003 the 72% were, on average, expanding by 7.5%. As we now know, this was achieved in large measure by a dramatic reduction in the amount of spare capacity around the world. This process of using up spare capacity was effectively completed in 2004 which means that, going forward, virtually all incremental demand will have to be met by new incremental capacity.. This approach can be viewed as reasonably reliable because stock exchange disclosure rules and companies need to reassure stockholders means that most companies actively publicise their future production projects. Similarly Opec producers are keen to reassure the world that they have the capacity to continue as reliable suppliers. We can therefore conclude with some confidence that most projects out to 2011 or even 2012 are known. It is already clear that the future projects production profile confirms the analysis based on production data in showing that after 2008 meeting likely demand will become difficult.. If the analogy of a scales or a seesaw is used then in 2003 the tilt was clearly towards expansion. The question at issue is how rapidly does this situation move towards the one where overall production decline -‘Peak Oil’- is the likely outcome? Simple arithmetic shows that if 40% of production is declining at 5%/year then the 60% still expanding production will have to grow by 3.33% just to offset the production lost by the 40% in decline.. However, any form of crash investment programme would be unlikely to deliver any significant increment in production before 2011/2012. Such programmes would undoubtedly raise development costs as both skilled manpower and field development construction capacity are constrained. A possible conclusion is that ‘Peak Oil’ will be in 2008+/- 2 years with further analysis needed to establish the factors that would accelerate or delay it.. If demand growth is 2% the 60% still expanding would have to produced a further increment of 3.33%. Thus to meet an apparently undemanding 2% growth in demand the countries with expansion potential would have to raise their production on average by 6.66%. If, however, demand growth was running at 4%/year the countries with expansion potential would have to grow at an average of 9.9%. Examination of the production data shows that only around 12 countries have expanded at these sort of rates in recent years and only about 6 countries have been able to sustain such rates for more than a year or two.. The strength of an analysis based on production data and future production projects is that the information and data is less contestable and easier to validate than reserves data but it is one that complements and confirms the view from the more complex reserves based analysis that ‘Peak Oil’ is just a few years away.. 21.

(26) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. Partex Oil and Gas: A Vision of the World Market and The Role of Gas as The Future of Oil António Costa Silva and Fernando Barata Alves Partex Oil and Gas Rua Ivone Silva, 6 – 1º 1050-124 Lisboa, Portugal + 351 217 912 905 ; + 351 217 912 904 acsilva@partex-oilgas.com ; f.alves@paretx-oilgas.com prices opens new opportunities to less conventional projects like the extra-heavy oil of the Orenoco belt in Venezuela and the Tar sands of the Alberta province in Canada. Parallel to that, a more aggressive exploration policy combined with the acceleration of the oil and gas projects in the deep offshore areas of Angola, Niger delta and Brazil, is important to cope with the world demand.. 2004 witnessed a consistent trend of high oil prices explained by a combination of factors ranging from a strong increase in the world demand, the rapid economic growth of Asian countries specially China and India, the erosion of the spare capacity of OPEC countries and political instability induced by geopolitical factors namely in the Middle East, West Africa and South America. Most of these factors will remain in 2005 and it is unlikely that the oil prices could return in the short-term to the previous lower level.. However these investments will take time to produce a consistent output and most of the companies and Governments are reluctant to embark in huge expensive projects when there are still plenty of cheaper opportunities. It is understandable that the Middle East Governments strategy focus on the preservation of their resources, namely the optimization of the oil and gas production and the reservoir management policies. In this context, the openness to foreign investment remains a challenge and a balance is required between Middle East Government interests, world demand and the role of international oil companies.. This paper discusses the consequences of the current price trend for the oil and gas industry on various issues, such as the current level of proven oil and gas reserves, the role of probable and possible reserves which can not be ignored, the high technological intensity of the industry that can drive it to new appealing breakthroughs, the triggering of Research and Development projects on new forms of energy like hydrogen, renewables and nuclear. In particular an analysis of the current crisis and its roots will be performed highlighting its specific content: it is a crisis induced by the demand not by the supply and, in this context, economic growth will remain the main driver of oil demand. The expansion of oil and gas production and supply capacity will call for an huge amount of investment, much of it in developing countries.. PARTEX OIL AND GAS has a long tradition in the oil and gas industry since its inception by Calouste Gulbenkian as partner of Iraq Petroleum Company in the first decades of the twentieth century. In this regard PARTEX vision has its roots in a realistic assessment of the Middle East oil and gas reserves which are far away from being depleted. A discussion of their role in the future is a must.. In the recent years, industry investments were more focused on existing assets. Investments in exploration did not deserve enough attention, as it is the case of the Middle East producing countries. A good example of this trend is that the last big field discovered in the world was Kashagan in Kazakhstan in 2000.. The gas world demand is booming and this trend will continue in the future. In this regard, the LNG market and other possibilities like GTL are options to be pursued by PARTEX. In parallel the notion of a diversified energy company will be introduced with the need to balance the energy portfolio encompassing the. In terms of the oil and gas industry, a new approach to this problem is required and the increase in world demand combined with high oil. 22.

(27) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 coal, nuclear and renewable energies. PARTEX vision is to position itself accordingly through the participation in new business opportunities, creating a balanced and solid portfolio of assets.. development of other resources with special focus on renewable energies. Within this framework it is clear that this century will witness a new mix in the energy portfolio with a new equilibrium between oil, gas, hydrogen,. 23.

(28) IV International Workshop on Oil and Gas Depletion – Lisbon 2005. The End of Cheap Oil: Structural or Cyclical Change in the Global Oil Market? Herman Franssen President, International Energy Associates, USA autumn of 2003, Wall Street oil analysts were very bearish about the five year oil price outlook. Oil market developments in 2004, spearheaded by huge growth in Chinese oil consumption in a year of above average oil demand growth elsewhere in the world, turned the previous consensus view around. When oil prices reached $ 40 and later $ 50 a barrel even the skeptics became aware that the entire oil supply chain, from the upstream to refining, was extremely tight. By late 2004 there was no usable oil production spare capacity left and deep conversion refining capacity was fully utilized. The forward cover of the NYMEX reflects the current industry view that oil prices are likely to remain high for years to come and an IMF study released in April of this year is even more bullish.. Some twenty five years ago, BP predicted the stagnation of global oil production in the 1980’s and an actual production decline by the 1990’s. A careful reading of the BP study shows that BP assumed 5.5% growth in oil demand outside of the Centrally Planned Economies (then USSR, Eastern Europe and China). Under those assumptions, global oil production (including the CPE’s) would have added up to some 100 million b/d by 1990. Petroleum Finance Corporation, an energy consulting company in Washington, DC , completed a detailed analysis of future global oil production in 2004 and concluded that world oil production (including heavy oil and tar sands from Canada) would probably not exceed 100 million b/d. The US government issued a report in 1980 which stated that …”the predominant view among geologists is that the chances of discovering enough quickly exploitable oil to offset declines in the known fields are slim. If the Persian Gulf countries and some non-OPEC producers continue to limit production, as we expect, world production of oil probably will begin to decline in the mid 1980’s…”. What has changed? On the demand side, the emergence of China (and later India) as a major industrial power, requiring ever larger volumes of oil to fuel its growing economy. On the supply side, the growing realization that non-OPEC oil production outside of the FSU has probably already peaked and that total non-OPEC oil production may peak in the early or middle of the next decade. The realization that from that time onward incremental demand will have to be met from OPEC sources and in particular Middle East OPEC sources, has once again focused global attention what producers can and will be able to produce in the future. Perhaps close to half of OPEC’s members may also be faced with reaching peak production capacity by the turn of the decade (some already have) and the data on reserves and production capacity in the public domain are very poor, leaving observers dependent on official sources. What is known is that most of the major oil producing fields in the Middle East are old and while many smaller fields are likely to be discovered in the years and decades ahead, the question remains when the major fields will reach peak capacity.. As a result of the high oil prices of the decade of the mid 1970’s to the mid 1980’s, oil demand collapsed in the OECD and the exclusion from much of the Middle East, forced the IOC’s to focus on new discoveries in Alaska, the North Sea and later deep water off Africa and the Gulf of Mexico. Although oil reserve numbers in many oil producing countries are highly suspect, BP statistics show global oil reserves at 569 billion barrels in 1980 and 1148 billion in 2003, while some 550 billion barrels were produced throughout that period. The development of Alaska, the North Sea, deepwater deposits off West Africa and in the Gulf of Mexico coupled with the experience of low average annual oil consumption growth in the 1990’s led to perception in the oil industry that $ 18-$ 20/bbl was the long term equilibrium price of oil because at that price almost all of the world’s oil was perceived to be exploitable. As late as the. Aside from the technical issue of peak production, there are socio-economic and political considerations to be taken into account. Almost all oil producing countries in the Middle East are. 24.

(29) IV International Workshop on Oil and Gas Depletion – Lisbon 2005 before the ultimate technical peak will be reached for reasons described above.. entirely dependent on oil revenue for government revenues and foreign exchange requirements. It would make sense for each one of those countries to plan on a very long (twenty to thirty years) production plateau based on conservative technical data. Conservative, because producing countries run the risk of over-estimating the duration of the technical production plateau. Oman, for example, almost had a policy of increase production only if a ten year plateau can be maintained at the higher production level. The production collapse of its prized Yibal light oil field, resulting in a 20-25 percent production decline over the past few years, was entirely unexpected. On the political side, Iraq is a good example. Some Think Tanks in Washington DC argued prior to the Iraq invasion that the oil sector in Iraq should be privatized, leading a quick build up of capacity to 5-6 million b/d by the end of this decade. In reality, production capacity two years after the war started is considerable lower than it was prior to the war and the outlook for political stability, needed to create an environment for upstream investment to increase capacity, is very cloudy at best. Iraq is unlikely to achieve anywhere near the oil production capacity in this decade estimated by experts only a few years ago, further reducing the volume of Middle East potentially available to the global oil market.. The timing of oil peaking (technical and other) is of great importance. If the pessimists were to prove correct, there is little the oil industry and policy makers will be able to do to mitigate the situation and the consequences for the global economy could be brutal for years to come. If the optimists prove correct, the world will have two decades to make the necessary investments in alternative sources of transportation fuel to enable a less disruptive transition away from complete reliance on conventional oil for the transportation sector. The paper will discuss the future outlook of the global oil market in the contexts of a rapidly expanding Asian economy and the impact of the timing of oil peaking (dependent in part on the oil demand outlook) on the entire oil supply chain (from upstream to downstream); prospects for a smooth or disruptive transition to alternative sources of transportation fuels; and, the geopolitical consequences of oil peaking. The paper will conclude that the changes in the global oil market since 2004 are structural in nature and that we are unlikely to see a return to the oil price cycles of the 1985-2000 period unless the world were to enter into a major global recession. In contrast to the decade from the late 1970’s to the mid 1980’s, high oil prices are not likely to lead to a sharp contraction of oil demand (no near term substitution for transportation fuels) nor to a sharp increase in oil production. The author concurs with the view expressed in the 2004 upstream analysis by Petroleum Finance Corporation which concluded that world oil production may not increase much above 100 million b/d.. The timing of oil peaking from both the purely technical and socio-economic/political point of view, is of crucial importance. Those analyzing technical oil peaking, have concluded that global oil peaking (depending on their definition of oil) will occur anywhere between a few years from now (pessimists) and two decades from now (optimists). Global production could peak long. 25.

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